5 Ways Charitable Giving Can Star in Your Financial Strategy
Helping others is great, and helping yourself is always good as well, so why not do both at the same time? Integrate these five strategies into your financial plan, and you can.
![A woman leans her head back and takes a deep, cleansing breath against the backdrop of a beautiful blue sky.](https://cdn.mos.cms.futurecdn.net/V9YVAnoWdG8d3rvNWG3JPc-415-80.jpg)
When professional baseball player Austin Barnes extended his contract with the Los Angeles Dodgers for another two years, he specifically included in the agreement a commitment on his part to make charitable donations.
That was a generous move and a financially savvy one all at the same time. He can put his money to work helping causes he believes in, while also enjoying tax advantages.
Most of us don’t have multimillion-dollar professional sports contracts like Barnes, but there are ways to increase your own donations and, at the same time, reduce your tax bill.
![https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-200-80.png](https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-320-80.png)
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
After all, you probably have a cherished cause — a church, an animal rescue organization, a homeless shelter or some other nonprofit — that you want to help. With charitable donations, you can choose specifically how your money is put to use, which isn’t the case with your tax dollars, which just go into the big tax pot in Washington.
Think of it this way: If you were told that you aren’t going to be able to keep $10,000 anyway, wouldn’t you prefer to have a say in exactly how it is spent?
With that in mind, here are five ways to make charitable giving a key part of your financial plan:
1. Set up a donor-advised fund (DAF)
This is a strategy that isn’t put into play often enough, in part because many people don’t know about it. A donor-advised fund allows you to make a sizable charitable donation that you can claim immediately as a tax deduction. The money isn’t donated immediately, though. Instead, it is placed in an account, and then you can distribute it out in small chunks over several years to nonprofit organizations of your choosing. An organization sponsors and manages the account, but you decide how and when the money is donated.
How might you benefit from a donor-advised fund? For example, let’s say you own a stock with a massive cost basis issue. You could donate that to the donor-advised fund, allowing you to avoid paying the capital gains tax as well as make your donations.
2. Donate your required minimum distributions (RMD)
If you have retirement savings in a tax-deferred account, such as a traditional IRA or 401(k), required minimum distributions (RMDs) kick in when you reach age 72. Essentially, the government requires you to withdraw a certain percentage each year, so it can collect the income taxes on that withdrawal.
This represents another opportunity to maximize charitable giving. Suppose you don’t need that IRA money, and you planned to make donations anyway. You can arrange for your RMD to go directly to a charitable organization through a qualified charitable distribution (QCD). You can donate up to $100,000 tax-free in this way. Not only is this a tax savings, but by avoiding the RMD, you keep your income lower for Medicare purposes, helping you avoid a potential increase in your premiums.
3. Bequeath money to a charity in your will
People often leave money to a charity after they die, but even that can be done strategically. If you just leave the charity a dollar amount, that money will come from a checking or savings account. Instead, it might be better to leave your IRA to the charity.
Why is that? Let’s say you also have children you are naming in the will. If they inherit money from a checking or savings account, they pay no taxes on it. If they inherit an IRA, they will end up owing taxes. But the charity owes no taxes either way. So, leave the charity the IRA and allocate the other cash among your heirs.
4. Set up a trust
Another way to make charitable donations is to create a charitable trust, which has several benefits. Here are a couple: A charitable trust provides a deduction on your income taxes. Also, you can donate an asset to the trust that has appreciated in value and is subject to capital gains tax. However, once the asset belongs to the charitable trust, no capital gains tax is owed.
5. Inspire the next generation — or two
If you have a philanthropic disposition, you can pass that along to your children and your grandchildren. One way to do this is to give them a certain amount of money with the intent that they are to donate it to a charity. They, of course, get to pick the charity. This is an excellent way to help them understand the concept of giving back and the satisfaction that comes along with doing that.
These are just a few ways to approach charitable giving that allow you to do good and to save on taxes, all in one. Making sure you do things the right way can get complicated. A financial professional can explain in more detail how these and other giving strategies work and help you decide what giving strategy would be best for you.
Ronnie Blair contributed to this article.
Disclaimer
The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
Matt joined the Semmax team as an advisor in January 2017. He is a CFP®, a licensed insurance agent and has passed the Series 65 securities exam. He is a graduate of UNC Greensboro with a bachelor’s degree in Kinesiology and a double minor in English and History.
-
Visa Is the Worst Dow Stock Wednesday. Here's Why
Visa stock is down sharply Wednesday after the credit card company came up short of revenue expectations for its fiscal Q3.
By Joey Solitro Published
-
Another Analyst Moves to the Sidelines on Tesla Stock After Earnings
Tesla stock is spiraling Wednesday after the EV maker's big earnings miss and Wall Street has been quick to weigh in. Here's what you need to know.
By Joey Solitro Published
-
Confused by Annuities? Making Sense of the Different Types
Many investors aren't sure if annuities are a good option for meeting financial goals. Let's look at the different categories, along with their pros and cons.
By Kris Maksimovich, AIF®, CRPC®, CPFA®, CRC® Published
-
Talkin' 'Bout My Generational Wealth: Baby Boomers
With retirement, each generation has different priorities and challenges. For Baby Boomers, it's a matter of ready or not, here it comes.
By Alvina Lo Published
-
How to Avoid a Big Hassle if Your Financed Car Gets Wrecked
How an insurance check is made out for repairs can cause a world of problems if the lienholder is left out.
By H. Dennis Beaver, Esq. Published
-
Estate Planning Strategies to Consider as Election Nears
Are big changes in tax laws coming soon? Not likely, but you might want to take advantage of higher estate and gift tax exemptions well before the end of 2025.
By David Handler, J.D. Published
-
How to Get Your Money's Worth From Your Financial Adviser
A good financial adviser will focus on how your financial planning and investment strategy align with your lifestyle and aspirations.
By Pam Krueger Published
-
Think of Prenups and Postnups as Financial Planning Tools
These contracts provide a clear framework for asset management and protection and are especially useful if you get married later in life.
By Andrew Hatherley, CDFA®, CRPC® Published
-
Congratulations on Your Raise: Three Things to Do With It
We're not saying you shouldn't spend it on a new car, but there are some considerations to guard against lifestyle creep and to help ensure a comfy retirement.
By Andrew Rosen, CFP®, CEP Published
-
Check Off These Four Financial Tasks to Finish 2024 Strong
The new year is a popular time to set financial goals, but now is the ideal time to check how you're doing. Four tweaks could make a big difference.
By Daniel Razvi, Esquire Published